Introduction

The analysis looks at the business strategy, corporate objectives, market research, and whether these things have been reflected in Delta’s balance sheet. I’d also like to discuss about company strategy for Investing in technology and innovation to expand their business is something. We will talk about artificial intelligence and data science in the context of Delta Airlines' business model. This study primarily focused on examining Delta Airlines from a business and financial standpoint to see whether it is wise to invest in such businesses. I combed through a lot of information on business models for companies and managerial choices, trying to keep management choices, market research, and balance sheet in sync. I have examined the business using both fundamental and technical analysis, which will enable me to better comprehend its future. I obtained the majority of the data, financial information, and references for this research directly from the company website; thus I hereby certify that all the material in this report is true and accurate. This paper was prepared for academic purposes only, and no financial decisions should be made based on it.

The first airline business to provide its customers a commercial and agricultural flying service was Delta. The phrase “postal service,” which is used to deliver mail and provide cargo services, was first used by Delta Airlines. The Delta airline had 572 destinations in close to 65 countries in 2012. North America, South America, Europe, Asia, Africa, and Australia were among these nations. Based on 5,766 regularly scheduled flights, Delta Airlines operated almost 714 aircraft. There are many parameters which needs to be considered for a company analysis but below are the three parameters must be considered while analyzing a company:

1. Economy Analysis

2. Industry Analysis

3. Company Analysis

Let’s look at some another important factor that must be considered for our analysis:

1. CAGR (Compounded Annual Growth Rate): CAGR requires that we look at a few things: -

  • top line, such as sales,
  • bottom line, such as profit,
  • or it could be EBITDA.

2. Ratio analysis:

  • Debt to equity ratio: - The optimal or maximum debt to equity ratio is 2:1.
  • PE Ratio: - Higher the PE, stock is expensive and lower the PE, cheaper the stock.
  • ROE Ratio: - Return on Equity: Profit After Tax/Equity, Higher ROE is better.

3. Cash Flow: - It’s most important while analyzing a company because a company profit can be manipulated but it’s very difficult to manipulate cash flow. Thereare two types of cash flow we need to analyze: -

  • Operating Cash flow: - How much cash is being generated from the core business? Higher operational class flow is Good for company.
  • Free Cash flow: - Operating cash flow-Money invest in Asset

Company Overview

Delta Airlines is a global airline based in the United States. As an airline, the company provides air transportation services for both passengers and cargo. Delta offers a wide range of services, including bookings, seating, reseating, online and kiosk check-in, and flight cancellations. While simultaneously offering tools for its staff, Delta continues to be dedicated to technical improvements that assist its operations. This involves continuous innovation in customer-facing apps as well as infrastructure and technological architecture enhancements to unify and enhance access to data sources. The firm continues to fly to more than 1,000 locations in 60 nations on six continents with more than 1,100 aircraft. While it ranks second in terms of passengers, Delta Airlines is the largest airline in the world in terms of revenue. By revenue, asset value, and market capitalization, Delta Air Lines is the biggest. In areas like artificial intelligence and data science, which we will go into more depth about later, Delta is investing heavily in technology and innovation. To keep its loyal clients, Delta offers very good health insurance and ACA benefits. Together with its regional affiliates, Delta Connection, the airline offers over 5,400 daily flights to 325 locations in 52 nations on six continents.

  • Figure 1: - Forbes' world’s biggest public airline companies by revenue (as of January 2020)

Company Business and Covid Impact

With five years in a row of $5 billion or more in pre-tax income from 2015 through 2019, Delta Airlines were the most profitable and largest airline in the world by total revenues in 2019. As a result of the extraordinary and broad effects of COVID-19 and related travel restrictions and social distancing measures that dramatically decreased demand for air travel in 2020, Delta made major changes to their network and operations. The emphasis on safety and the application of the Delta Care Standard to deliver a consistently safe and sanitized experience throughout their facilities and aircraft are what fuel Delta’s net promoter scores. To lessen the impact of cyclicality and other major declines in demand for air travel on our performance, they have recently diversified their income streams beyond the simple sale of an airline ticket. In 2020, the co-brand income stream from their collaboration with American Express remained correlated to wider consumer spending. Delta Airlines still had the title of having the most valuable airline brand in the world in 2020. The operations' quality and dependability have greatly improved over the past ten years, and as a result, our customer satisfaction ratings have significantly grown. Delta have continued to gain our customers' confidence and choice by delivering the “Delta Difference” via operational excellence, best-in-class service, and a dedication to protecting the health and safety of their customers. Delta think that their ongoing investments in technology, operations, product, airports, and customer service and experience have influenced how customers perceive their brand and enhanced their loyalty. With plans to retire a further 128 aircraft by 2025, Delta expedited this fleet simplification approach by retiring 227 aircraft in 2020.

Company Performance

Income Statement

Operating revenue for Delta as of December 31, 2021, was 29.9 billion USD, while operating revenue as of December 31, 2019, was 47 billion USD, or roughly $17 billion less. Additionally, between 2016 and 2019, sales grew steadily. It appears that there has been a minor rebound in operating revenue when comparing the operating revenue for 2019 and 2020. Operating revenue for Delta at the end of 2019 was 47 billion USD, about $30 billion less than operating revenue for the same period in 2020, which was $17 billion. Due to lower demand brought on by the COVID-19 pandemic, our operating revenue declined $29.9 billion, or 64 percent, when compared to the year ended December 31, 2019. The gross margin for Delta in 2020 was at a level of 27%. Compared to the 73 percent industry average and the preceding two years, when Delta’s gross margin maintained over 50 percent, the firm underperformed. The proportion of total operating expenses to total operating revenue rose from 86 to 172 percent. Profit margin decreased from 10% to -72% because of the operational loss and decline in total sales. When compared to industry averages, Delta underperformed in 2020 because of the effects of the global pandemic, but 2019 and 2018 ratios show that Delta outperformed the industry averages for each ratio. However, as we discussed in the section above, the company underperformed due to the Covid 19.

  • Figure 2: - Income Statement for 2021

  • Figure 3: - Income Statement for 2020

Operational Expenses: In the December quarter of 2021, total operating expenses, adjusted to $8.1 billion, climbed 3 percent sequentially due to higher fuel and non-fuel expenditures from the airline’s ongoing restoration. In the December quarter of 2021, adjusted fuel expenses of $1.6 billion increased by $55 million, or 4%, over the September quarter of 2021. The adjusted gasoline price, which was $2.10 per gallon, increased by 8% from the September quarter of 2021 due to higher market prices, which were only partially offset by sustained refinery contribution and better RINs pricing and volume commitments. Due to our fleet renewal initiatives, fuel efficiency during the December quarter of 2021 increased by 4.3 percent compared to the same time in 2019. Fuel efficiency is measured in gallons per 1,000 ASMs. As Delta works to uphold its goal to carbon neutrality by pursuing high quality, verified offsets, carbon offset expenses incurred during the quarter also had a 3% impact on fuel prices. Non-operating expenses: non-operating expenses for the quarter ending in December 2021 totaled $658 million, including losses from the equity method, mark-to-market losses on some assets, and losses from debt extinguishment. Adjusted non-operating expenditure was $175 million.

Balance Sheet

The balance sheet restoration, $6 billion in gross debt reduction, and full PPA payment of the pension funds were all accomplished by Delta in 2021. As operating cash flow increases to support the recovery of their balance sheet to investment grade standards by 2024, debt reduction continues to be a primary financial focus. The corporation had adjusted net debt of $20.6 billion at the end of the December quarter of 2021, total debt and finance leasing commitments of $26.9 billion, and a weighted average interest rate of 4.2 percent. The industry average is 25.2x, therefore Delta’s 8.2x receivables turnover is slightly less than that. Credit card company debt makes up most Delta’s accounts receivable. Significantly lower revenue than in prior years is another reason that could be at play. To stay close to the industry average of 13.6x, Delta managed to maintain its inventory turnover at 12.5. The main component of the inventory is gasoline, which helps to control the risk of changing fuel costs while ensuring that operating rates are not impacted. Although Delta’s asset turnover (0.25x) is much lower than the industry average (0.9x), it is still higher than the industry low (0.26x) in the fourth quarter of 2020. Asset turnover for the business was higher than 0.75x in prior years. A decreased ratio is the outcome of a drop in sales brought on by the global epidemic. Return on Assets (-18.1%) is another area where Delta falls short of the industry average, which is 6.62 percent. Due to their net loss, a negative ROA shows that the corporation did not utilize its assets effectively in 2020. Since travel, hotel, and the aviation industries were most severely affected by Covid, the corporation appears to be progressing well and rebounding in 2021. The aviation industry is currently working very hard to improve its financial situation, but the rules they have put in place like proper covid testing, vaccination, hygiene maintenance, good staff management, following government guidelines and the speed with which vaccinations are being administered offer promise for not only Delta Airlines but the whole sector.

Solvency and Liquidity

Since 2019, Delta has become better at paying off short-term debt. In contrast to 0.41x in 2019 and 0.68x for the industry, the ratio for 2020 is 1.09x. A ratio from the prior year may suggest that the company’s resources are not being utilized effectively enough to produce revenue. However, the company’s current assets, especially cash, have greatly expanded in 2020, which has improved the current ratio and given it the capacity to fulfill its current liabilities more effectively. Similar conclusions may be made based on the fast ratio (0.97x) of Delta, which beat its competitors in the industry (0.44x), and its 2019 ratio (0.28x). Now more than enough of the company’s most liquid assets are available to cover its immediate obligations. A business may pay off all of its current liabilities right away if its ratio is greater than one. Since the ratio was 76 percent earlier, Delta’s debt to total assets ratio has increased to 98 percent. The firm lagged the sector average of 32% in both years. Now, creditors fund % of assets. In addition, a high ratio suggests that a business may be placing itself at danger of loan default if interest rates spike unexpectedly.

Cash Flow: Operating cash flow during the December quarter 2021 was $555 million. Free cash flow was negative $441 million for the quarter with gross capital expenditures reinvested in the business of $948 million. The company’s Air Traffic Liability was $6.4 billion at December quarter-end, approximately flat compared to the end of the September quarter. Delta ended the December quarter with $14.2 billion in liquidity, including $2.9 billion in undrawn revolver capacity.

RISK FACTORS

The risk factors may be divided into numerous categories, including, Risk Elements Related to Delta and those. Those risks can be: -

1. Risk Elements Affecting the Delta

  • The COVID-19 virus’s quick spread, the pandemic that resulted from it, will continue to have a materially negative impact on Delta’s business. Furthermore, the pandemic’s long-term impacts are anticipated to be more significant the longer it lasts.
  • The financial situation and operations of Delta might be seriously harmed by a lack of cash.
  • A severe accident involving one of our aircraft or one of our airline partners' planes might result in damages for Delta and negative publicity.
  • Data held in the technological systems that Delta uses and relies on, as well as security breaches or failures, might jeopardize sensitive information and subject them to liability, potentially having a materially negative impact on Delta’s business.
  • Delta’s operations might be hampered by interruptions to its information technology infrastructure, which could have a materially negative impact on the company’s bottom line (Profit).
  • A materially negative impact on Delta’s company might result from the technology’s inability to function properly.
  • It’s possible that Delta’s business ties with other international airlines and their investments in a few of them won’t yield the expected outcomes or profits.
  • Intangible assets and long-lived assets owned by Delta might never be fully realized, resulting in impairment charges that could severely harm its operating performance.
  • Strikes and other labor-related disruptions might significantly harm Delta’s business operations.

2. Risk Elements Affecting the Whole Airline Sector

  • Terrorist attacks, geopolitical strife, or security incidents might have a negative impact on our operations, financial situation, and company.
  • The global airline sector is extremely competitive, and if we are unable to successfully compete in the market, it will have a substantially negative impact on our operations, financial position, and company.
  • Prolonged delays or interruptions in service at important airports where we conduct business or severe issues related to an aircraft or engine, we use might materially harm our operations.
  • The government regulates the airline sector heavily, which is expensive and might seriously harm our company.
  • The aviation sector is governed by a variety of environmental laws, including stricter rules designed to cut emissions and other climate change-related concerns. Failure to follow current or upcoming environmental rules, or to adequately manage the risks associated with climate change, might seriously harm our company.
  • Due to the nature of our company, which is worldwide, negative economic or political situations in the areas in which we operate or currency exchange rate volatility might materially harm our business, financial position, and operational results.

3. Market risk disclosures that are both quantitative and qualitative

  • Fuel Price Risk
  • Interest Rate Risk
  • Foreign Currency Exchange Risk

NEW INITIATIVES AND KEY COMPETITORS

The focus of this segment of my research will mostly be on technology and innovation because businesses now compete on both fronts. So let’s identify which businesses are making significant investments in data science, big data, and artificial intelligence. This piece of my research will mostly focus on all the research I conducted on airlines and big data, which I will describe one by one. Although the airline with its headquarters in Atlanta is an aviation industry company, but Delta should be included among the data science firms. On a scale that has never been accomplished by an airline, Delta integrates machine learning to decision science. Data scientists at Delta simulate operational difficulties using past data to develop solutions that have the least negative impact on customers. It’s reassuring to find one airline that is utilizing the power of data to enhance the passenger experience after being irritated by the incompetence of many others. Efficiency and optimization are important objectives for Delta as the primary airline at Hartsfield Jackson International Airport, the busiest airport in the world. There are several available data science positions at Delta, however the most of them are in Atlanta, Georgia. The greatest data science employers in the Southeast unquestionably includes Delta. Your work can involve data strategy, operations decision science, or health analytics. So I think “Delta is leading in Machine Learning and Data Science Industry as well”, but let’s analyze how Delta’s competitors are challenging them with technology and innovation.

Southwest Airlines (Flight Intelligence): -I chose them as my first case since they are working on some pretty cool projects. Southwest Airlines, for example, has partnered with NASA to constantly improve aircraft safety. During the flight, massive volumes of data are created, including pilot reports, warning reports, control positions, and exchanges with air traffic control. When this data is regularly monitored and evaluated, processes may be streamlined, and safety can be improved. Southwest and NASA have developed an automated system that can analyze massive amounts of data to detect irregularities and avert mishaps using sophisticated algorithms.

United Airlines (to instill loyalty): -Today’s airlines are fortunate enough to be able to learn a great deal about their consumers because to the abundance of data accessible. They can extract their consumers' behaviors, decisions, and preferences using their data. For example, United Airlines analyzes over 150 characteristics in each passenger profile using their “collect, detect, act” procedure. To provide a tailored offer, these studies track everything from prior purchases to client preferences. United’s income has risen by over 15% year over year because of the gather, detect, act campaign.

Delta (Ending the problem of misplaced bags): - Delta, an American airline, has created a smartphone app that allows customers to track their luggage. The notion is simple: the app use the same technologies that Delta’s ground crew employs. Delta consumers have downloaded the app over 11 million times worldwide thus far.

Challenges of Technology Implementation in Aviation: - The Flood of Data Volume is the first challenge. Managing a Wide Range of Data Types, Formats, and Structures is the second challenge and Analyzing and Using Real Time Data at speed could be the third challenge. Several gigabytes of data are generated on each flight. It’s no surprise that industry analysts predict yearly data creation to exceed 98 million terabytes by 2026, given that the next generation of aircraft will create five to eight terabytes every trip, which is already 80 times larger than planes in the air now. The range of data types that aircraft operators must ingest and evaluate on every given flight complicates and challenges the work of data management and processing.

MANAGEMENT’S DISCUSSION In my research, I discovered the following main initiatives that management is looking to conduct considering the financial outcome and any associated risk factors: -

    1. Prioritizing Delta’s customers and staff
    1. Implementing updated cleaning practices on all flights, such as routine electrostatic disinfectant spraying the aircraft and disinfecting high-touch areas including tray tables, entertainment displays, armrests, and seat-back pockets.
    1. Taking actions to encourage social distance to advance safety
    1. Allowing consumers to plan and rebook their travel.
    1. Giving workers who tested positive with COVID-19 salary protection Reduced Capacity.
    1. Expense Control The management objectives are in line with the company’s objectives, business strategy, risk considerations, and balance sheet. There is no question regarding the validity of the corporation because the management discussions are quite open and the company is 100 years old. In addition, management is taking the necessary steps to recover from the loss of COVID-19 and is ensuring that both their staff and customers travel pleasantly and safely, which is a very positive development. To make up for the loss from COVID-19, the management is also decreasing costs through a process known as expenditure control, but they are ultimately not compromising on customer pleasure and customer safety.

STOCK MARKET ANALYSIS

Delta is a publicly traded company on the NYSE. There were around 2,300 holders of record of our ordinary stock as of January 31, 2021. Since 2019, Delta’s return on equity (- 146.6%) and price-earnings ratio (-2.06) have both decreased considerably from 32 percent and 7.99x, respectively. The net loss caused both ratios to turn negative. A negative dividend payout ratio of -2.1 percent is also calculated, down from 20.6 percent. Because it indicates a lengthy string of losses, Delta’s negative retained earnings (-438 million from $12,454 million) might be an indication of insolvency. Dividends: - A quarterly dividend program was started by Delta in the September 2013 quarter, and it has since risen numerous times, most recently to $0.4025 per share in the September 2019 quarter. Due to the COVID-19 pandemic’s effects, Delta halted upcoming payouts in March 2020. Dividend payments after that point will rely on Delta’s operating results, financial situation, liquidity needs, future prospects, and other factors the Board of Directors deems appropriate.

  • Figure 4: - Stock Performance Graph

Other Relevant Information In order to better match aircraft deliveries with their network and budgetary demands over the following several years, Delta reorganized its aircraft order books with Airbus and MHJ RJ Aviation Group (maker of CRJ aircraft) in 2020. With the new delivery timeline, Delta will be able to maintain their Airbus book order while continuing to modernize and streamline their fleet. The following is a list of future aircraft purchase contracts totaling around $13.9 billion (224 aircraft in total) as of December 31, 2020.

  • Figure 5: - Aircraft purchase commitments by Delta

Due to the COVID-19 pandemic’s effects, Delta has halted dividend payments going forward until March 2020. Dividend payments were previously prohibited under the CARES Act Payroll Support Program until September 2021; however, under the rules of the program, this restriction has been extended until March 2022. Through this scheme, Delta got $5.6 billion, of which $1.6 billion came in the form of an unsecured, low-interest loan with a 10-year term and a grant of $4 billion. Due to revenues from loan and debt issuances, support payments made under the CARES Act payroll assistance program, and other liquidity measures, Delta’s liquidity on December 31, 2020, was $16.7 billion, an increase of $10.8 billion from December 31, 2019.

Conclusions

Delta underperforms the industry standard in most pertinent criteria. Although Delta’s ability to service its short-term debt has increased, this is probably because it has acquired long-term liabilities to enable it pay down maturing debt. The decline in ratios, sales, and net income can be attributed to the global pandemic, which started in March 2020. The event grounded all airlines because most nations closed their borders to tourists. Airlines were forced to obtain new loans to pay off maturing liabilities because of lower revenue. The loss has been somewhat recovered by Delta. The company’s stock price increased from $40 to $48 since December 2020 but again in Jun 2021, the price drops to $29. Delta is making progress at reestablishing its activities and taking back its position. I would advise investing in DAL since the company will eventually regain its full operational capability and produce more income now that all businesses are recuperating from the epidemic. There are other factors as well that contribute to the company’s position as a market leader. For example, according to overall revenues, Delta Airlines was the world’s most profitable and largest airline in 2019 and will continue to be so in 2021. The company’s core competencies are quite solid, and the debt-to-equity ratio is likewise favorable. In Delta Airlines, one can invest.According to a stratascratch post, the company is one of the 11 Best Companies to Work for as a Data Scientist and invests heavily in technology and innovation. Therefore, a company’s future is undoubtedly going to be very bright if it invests so much in machine learning, artificial intelligence, and data.

References